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TMI Blog1965 (4) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... xceeding fifty years, and of every such subsequent period, not exceeding twenty years, as shall be specified in this behalf in the licence, have the option of purchasing the undertaking, and, if the local authority, with the previous sanction of the State Government, elects to purchase, the licensee shall sell the undertaking to the local authority on payment of the value of all lands, buildings, works, materials and plant of the licensee suitable to, and used by him for, the purposes of the undertaking, other than a generating station declared by the licence not to form part of the undertaking for the purpose of purchase, such value to be, in case of difference or dispute, determined by arbitration: Provided that the value of such lands, buildings, works, materials and plant shall be deemed to be their fair market value at the time of purchase, due regard being had to the nature and condition for the time being of such lands, buildings, works, materials and plant, and to the state of repair thereof, and to the circumstance that they are in such a position as to be ready for immediate working, and to the suitability of the same for the purposes of the undertaking: Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the total amount of profit determined, as stated above, to be ₹ 44,580 is not in dispute. Against the above-said order of the Income-tax Officer, dated December 31, 1957, and appeal was preferred by the assessee. This appeal was dismissed by the orders of the Appellate Assistant Commissioner of Income- tax dated April 8, 1958. The appellate authority rejected the contention of the assessee that the sale in question amounted to compulsory acquisition and not to a sale as contemplated by section 10(2)(vii) of the Income-tax Act. The second contention raised by the assessee before the Appellate Assistant Commissioner was, in any case, to exclude a sum of 20 per cent. of the value of the machinery, etc., which had been computed in the sale price on account of the agreement contained in the second half of paragraph 9 of the licence and which had to be paid in pursuance of the second proviso to sub-section (1) of section 7 of the Electricity Act. It was argued before the appellate authority that this amount of 20 per cent. was in the nature of a solatium and was not taxable because it was not paid in consideration of the sale but as compensation for cessation or st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Electricity Act, as indicated by the relevant provisions thereof and the rules made thereunder, shows beyond any doubt that the option of purchase is the result of a mutual agreement between the parties, the applicant for the licence on the one hand and the Government on the other. The High Court rightly observed: 'The rules show that a draft licence has to be sent by an applicant for licence containing definite and specific terms on which the licence is sought. This amounts to an offer. The Government accepts it or rejects it. If it modifies it in any way, then the applicant or offerer must accept the modification. If the Government accepts the offer with or without modification, then it grants a licence. In my view a licence granted by the Government in such circumstances amounts to a contract between the parties.' On behalf of the appellant it has been contended, somewhat faintly, that all the elements necessary to constitute a contract are not present here. We are unable to agree. There was an undertaking on the part of the applicant for the licence to sell the undertaking to the local authority or Government upon certain terms set out in the licence, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits and gains within the meaning of the Income-tax Act . Though the Privy Council judgment was given before the amendment of section 10(2)(vii) of the Income-tax Act by Act VIII of 1946, we do not think the difference between the unamended provision and the amended provision is material for the purposes of the question before us. In the case of Shaw Wallace and Company [1932] 2 Comp. Cas. 276; A.I.R. 1932 P.C. 138 , however, there was no question of any sale, nor was any question of the interpretation or application of clause (vii) of sub-section (2) of section 10 of the Income-tax Act involved therein. On the other hand it was a voluntary agreement between the two companies in that case by which certain amount was paid as full compensation for the cessation of the agency of the other company. Under the Electricity Act, the situation seems to be very different. The provisions of section 7 are not of a confiscatory nature but appear to have been made to help the assessee for whom the electric undertaking would be wholly useless after the termination of his licence for generating and supplying electricity under the Electricity Act. The scheme of the deeming provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as and by way of compensation for terminating or cancelling the same would only be a capital receipt in the hands of the assessee. While making the above observation their Lordships of the Supreme Court relied on the Privy Council judgment in the case of Shaw Wallace and Company [1932] Comp. Cas. 276 . For the reasons given above neither the Privy Council judgment nor the above-said judgment of their Lordships of the Supreme Court is relevant for the purpose of deciding the question before us. Mr. Sodhi then relied on the judgment of the Nagpur High Court in Rai Bahadur Jairam Valji v. Commissioner of Income-tax [1951] 19 I.T.R. 361. In that case also the question that arose was regarding the liability to income-tax of an amount received by the assessee as damages or compensation for the premature termination of a contract between two parties. No such question arises in the instant case. This judgment of the Nagpur High Court is, therefore, of no assistance to us in deciding question No. 2 referred to us by the Commissioner of Income-tax. The learned counsel for the assessee then referred to the dictionary meaning of the word solatium . But it is significan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the sale which is the amount for which the sale took place. It is nobody's case that the so-called solatium was payable independently of or without the sale of the property in question in any circumstances whatsoever. In the judgment of the Supreme Court in the Fazilka Electric Supply Company's case [1962] 46 I.T.R. 127, 133 (S.C.) , the following observation appears to be not only relevant but significant [1962] 46 I.T.R. 127, 133 (S.C.) : The second proviso is another enabling provision which enables the parties to specify in the licence such percentage, if any, not exceeding twenty per centum, as should be added to the value of the building, plant, machinery, etc., when the option of purchase is exercised. No doubt, the expression used in the proviso is 'compulsory purchase'; but in substance what it provides for is that the parties may agree to increase the market value of the building, plant, etc., by a certain percentage when the option of purchase is exercised and the price has to be paid. The use of the expression 'if any' after the word 'percentage' shows that the parties may agree not to increase the market value at all . ..... X X X X Extracts X X X X X X X X Extracts X X X X
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